Morning Markets: Demand Worries Send Palm Down. Data Jitters Depress Grains

(Agrimoney) –  Soyoil may have managed some headway in the last session. (If only thanks largely to closure of long soymeal-short soyoil spreads. Open interest in soyoil futures dropped 6,760 lots in the last session, to 485,193 contracts.)

But the headway did not extend to rival vegetable oil palm oil in this one, with the Kuala Lumpur May contract standing down 1.3% at 2,447 ringgit a tonne as of 09:40 UK time (03:40 Chicago time).

A close at that level would be the weakest for a benchmark contract in more than six weeks.

‘You cannot be bearish’

Not that all the news on palm oil is downbeat for values, with Godrej International’s Dorab Mistry, a respected industry analyst, for instance, forecasting that prices will climb to 2,700 ringgit a tonne by June, helped by improved world economic growth.

“In a year of strong worldwide growth, you cannot be bearish commodities,” Mr Mistry told a conference in Kuala Lumpur.

“If worldwide growth exceeds 5%,” the outlook for palm oil prices “gets more bullish”.

LMC International’s James Fry, another respected commentator, forecast prices rising “towards 2,600 ringgit as stocks fall”, with the current time of year a weak one for production.

Still, that rise will be “brief”, and will herald a decline, with prices to “fall to near 2,300 ringgit by July”.

And they will then decline a further 100 ringgit a tonne, as Malaysia’s period of zero tax on palm exports ends.

Demand worries

Longer term there is some more bullish news, according to Thomas Mielke, at respected Oil World, who said that “the strong recovery in world palm oil production in 2017 and 2018 is temporary.

“From 2019 onward there will be smaller annual increases in palm oil production and supplies.”

Still, that was too far off to persuade investors how to bet on palm oil increases, with worries more about demand, with shipments to India being squeezed by a rise on its import taxes, and ideas that the surge in soybean imports to China will, in bringing huge supplies of soyoil (as well as soymeal) weigh on vegetable oil values.

Certainly, on China’s Dalian exchange, palm oil futures for May eased by 0.3% to 5,246 yuan a tonne.

Dalian soyoil for May shed 1.0% to 5,796 yuan a tonne.

‘Weather remains unfavourable’

So soyoil futures for May started a bit weaker in Chicago too, down 0.3% at 32.37 cents a pound.

Again, soymeal-soyoil spreading appeared to have a bit to do with it too, with soymeal futures for May up 0.2% at $388.70 a short ton, looking to extend a period of alternate higher and lower sessions, which has set in at the highest price levels in 20 months.

The outlook for weather in Argentina, the top soymeal exporter, continues to look worrying for soybean (and corn) yields.

“Argentina weather remains unfavourable with the calendar going by,” said Benson Quinn Commodities.

“Scattered storms with limited coverage remain the only relief.

“Central Chaco received much needed rains Monday, and forecast has the potential for more in northern areas.

“But most of Argentina to see little rain in the next 10 day forecast period and the window for possible improvement closing.”

Wasde ahoy

Futures in soybeans themselves shed 0.2% to $10.72 ¼ a bushel for May delivery.

Also on traders minds is the prospect of data on Thursday from the US Department of Agriculture on world crop supply and demand prospects, in the monthly Wasde report, which often sees pre-briefing profit-taking.

Mike Mawdlsey at First Choice Commodities said: “We have witnessed some sizeable moves on crop report days,” a factor which has encouraged investors to take gains while they are definitely there.

Some investors have hoped in the Wasde to see a cut to expectations for US soybean supplies, as demand for the oilseed and products transfers from Argentina.

However, the consensus forecast, according to a Reuters survey, is actually for the Wasde to keep at 530m bushels the forecast for US soybean stocks at the close of 20170-18.

There is also the prospect of a briefing on Thursday from Brazil’s official Conab bureau too, which investors see bringing an upgrade of getting on for 3m tonnes, to 114.3m tonnes, according to a Bloomberg survey.

Battle for acres

Meanwhile, attention is beginning to stray too to the so-called “battle for acres”, and how much land northern hemisphere farmers will allocate to which crops in spring seedings programmes.

“Once this Wasde report is out of the way, traders will be focusing on the USDA’s Planting Intentions report at the end of the month,” said First Choice Commodities’ Mike Mawdlsey said.

FCStone surprised investors by forecasting US soybean sowings this year of 92m acres, 2m acres above the current USDA estimate, although a forecast for corn area of 88.9m acres, 1.1m acres below the official figure, attracted less controversy.

Corn futures for May eased by 0.1% to $3.87 ¾ a bushel, ahead of a Wasde expected to trim the estimate for US stocks at the close of 2017-18 by 40m bushels, to 2.312bn bushels.

‘Not much rain is advertised’

Wheat also suffered some pre-Wasde profit-taking, with the Chicago May soft red winter wheat contract down 0.8% at $5.03 a bushel, while the Kansas City hard red winter wheat lot for May fell by 0.4% to $5.39 ¼ a bushel.

Not that worries over dryness in the US southern Plains, where hard red winter wheat is largely grown, have disappeared.

“Not much rain is advertised over the next seven days for the dry areas of hard red winter wheat country,” said Terry Reilly at Futures International.

Ticking for Tock

At Commonwealth Bank of Australia, Tobin Gorey said that “weather forecasters do not expect material rainfall in that dry region around the adjoining border of Texas, Oklahoma, Colorado and Kansas”, known as “Tock”.

“Weather forecasters also expect the region to be unseasonably warm for much of the next 7 10 days,” Mr Gorey said.

“Dry soils and rising temperatures are obviously a bad combination even for healthy crops.

“The drought through the Tock region though has meant that crops are already wonky. The clock is tick is getting louder for wheat crops in the Tock region.”